Moody's sees Latin American phone companies curbing investment

SAO PAULO Nov 23 Latin American phone carriers
will slow capital spending for the next couple of years amid a
widespread economic slowdown and still-high debt, Moody's
Investors Service said on Wednesday, a sign the industry is
prioritizing debt reduction over growth in the near term.

Analysts led by Marcos Schmidt said in an report that the
so-called capital intensity metric, which measures how much of
revenue is consumed by fixed capital spending over time, may
decline to about 16.6 percent by December 2018 from about 20
percent two years ago.

The slowdown in capital spending, partly due to maturing
fourth-generation capacity investments from recent years, could
leave operational profit margins at an average 7.3 percent in
2018, from almost zero in 2014, the report said. As a result,
the risk of underinvestment will intensify beyond the next two
years.

The report underscores how eroding growth and household
income from Mexico to Chile in the past two years hammered the
ability of phone companies to profit from rising demand for data
and digital mobility services. The investments made to meet such
demand led some of the region's biggest carriers to take on too
much debt, sparking a handful of bankruptcy protection cases
since 2013.

"Higher leverage will also make disciplined liability
management a greater priority next year," Schmidt and his team
wrote.

Capital spending at Latin American phone companies is seen
stable at an average $16.3 billion over the 2017-2018 period,
the report said.

Brazil's gradual recovery next year will likely benefit the
industry, with Telefónica Brasil SA best positioned
to benefit from strong consumer recognition and budget
discipline, the report said.

The analysts blamed Oi SA's current in-court
reorganization - Brazil's largest ever - on "a risky business
strategy and inadequate capital structure." Oi could likely
become target of a takeover once the restructuring of 65.4
billion reais ($19.3 billion) in debt is finalized, the report
said.

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